2015 Review and 2016 Investment Strategy

By Carl Spiess, CFP, CIM, FMA, FCSI, MBA

Looking back on 2015, the TSX total return was down over 8% largely due to low oil prices and the subsequent impact on resource and utility share prices. Bank stocks and other large names were not immune to declines, which continue into the first weeks of 2016 — but dividend yields have increased, providing opportunities for investors into 2016.

The saving grace for most portfolios in 2015 was exposure to foreign investments. Any security held in US$ rose 19% and Euro investments increased 7% just on currency, as the Canadian dollar declined over the year. Our list of recommended foreign funds shows some really strong performers.

Our guidance for 2016 will remain balanced, keeping in mind that as we are all a year older, many portfolios will need to be rebalanced and made more conservative as the timeline for retirement income streams becomes clearer. In particular, our discretionary managed portfolios will be made more conservative throughout the next year.

See the Recommended Reading section for our latest Portfolio Advisory Group analysts' reports about the Current Market Turmoil and even more links to broader Scotia Economics publications.

We would be pleased to review your account performance in detail and provide you with specific recommendations for rebalancing or any contributions planned for 2016. Contact us to discuss your portfolio.

TFSA, RRSP, RESP Contributions Update for 2016

As mentioned in my video, TFSA and RRSP accounts are great places to hold your retirement investments. Here is a summary of the limits, including RESPs:

The Tax Free Savings Account limit is $5,500 for 2016. (From 2009-2015 the cumulative TFSA room available to Canadians over 18 totaled $41,000.)

Your Registered Retirement Savings Plan limit would be shown on your notice of assessment — likely received in May 2015. (18% of last year's earned income less any Pension Adjustment, maximum $24,930.)

Please note that while our new brand name is Scotia Wealth Management, our operation is still ScotiaMcLeod; so cheques are payable to ScotiaMcLeod. Use our handy contribution form if you are sending a cheque.

While you are thinking about your contributions, consider consolidating other investment accounts with us, too. Each year, many of our clients decide to simplify their accounting and have a better big picture view of their portfolios by consolidating their accounts with us. In fact, a total of $14.6 million in assets came in to us as transfers to existing accounts in 2015.

Please contact us to review your contribution limits and strategies for which type of contribution makes the most sense based on your personal situation.

Celebrating a Decade of Target Date Funds

It was just over 10 years ago that a new type of investment fund was introduced in Canada. Lifecycle, Target Date, or Retirement Date funds are all names for the same kind of investment fund that was an exciting innovation in Canadian mutual funds. The concept that a single fund could be rebalanced over time to ensure it continues to be appropriate as a client matures and wants less risk was appealing. Target date funds had been available in the US for many years, and it was great to see them offered to Canadians.

We did an analysis of the 4 leaders in the Lifecycle fund market in 2005 and recommended Fidelity's Clearpath suite of funds. 10 years later, it is interesting to note that Fidelity and Clarington remain in the business — several brands have departed the space. Fidelity is the leader in market-based funds, and Clarington is the remaining fund family offering a retirement date fund with a guaranteed high water mark maturity value.

Fidelity Clearpath portfolios remain one of our top recommended investments on our recommended list and we've been pleased with their 10 year returns and even 2015's return during difficult Canadian markets.

See the complete list of Target Date funds available through Scotia (and their performance data):

Regulatory Changes — CRM2 — Statements

Our provincial and national regulators have been implementing changes to how investment firms report performance and client information. You may have noticed this additional Relationship Disclosure Document in your recent statements — which pushed the size of some of those statements to 12 pages!

I am pleased that ScotiaMcLeod always provided clients with information about their plan growth on RRSP statements, something no other investment firm did in the 1990s and even up until recently. Those returns always showed the most important information, how your account performed after all fees. In addition, my team has run our investment newsletter with its detailed performance tables for many years. I think most of the information is easy to find on the web, and doesn't really need to be reprinted on monthly statements, but in case you need easy access, here are some of the other referenced documents:

As a broader industry trend, there is a debate as to whether mutual funds should pay trailer fees to cover the fees for the services advisors and their firms provide.

One recent piece of research was commissioned to review mutual fund performance and fees. Not surprisingly, it shows that good performing funds attract more assets. It also notes that funds with higher trailer fees often attract higher fund flows and that those higher fees detract from returns. Fidelity recently wrote a piece addressing some of those issues and has comments on regulatory changes in general.

We maintain that fund trailer fees provide a convenient way for investors to receive professional investment advice and simple bottom line return information. We are pleased to provide exact details on the trailer fees on your accounts upon request or during our annual reviews. However, at least ¼ of our client accounts are "fee based" and clients receive separate statements showing the fees they pay to us directly (and a portion of those fees can be tax deductible annually.) My personal opinion is that most investors know that there is a 1% trailer fee on most mutual funds. What most people don't realize is that there is around .25% in annual taxes on a typical fund. That should be included in the disclosure as well — especially as that tax is even charged on investment management fees in Tax Free Savings Accounts!

Please contact us if you have questions about the changing regulations or fees or your relationship with us at ScotiaMcLeod.

Team Profile — Nicole Keeler

Nicole Keeler is celebrating her 25th anniversary at ScotiaMcLeod. She has spent all of those 25 years working directly with me and our clients. She has developed a specialty in supporting our group plan sponsors as well as our plan members. An increasing focus of this specialty is assisting retired plan members as they transition to private clients. Internally at ScotiaMcLeod, Nicole has been active in Scotia's advancement of women programs.

On a personal note, Nicole and her husband Anthony are the proud parents of two lovely children. Recently, they have started to dip into the family RESP as their eldest is off to university. Congratulations Nicole!

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The Spiess McGlade Team is a personal trade name of Carl Spiess and Allan McGlade.